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Rural/Metro Announces Results for Fiscal 2008 Second Quarter
Date:2/11/2008

Highlights from Fiscal 2008 Second Quarter Ended Dec. 31, 2007

- 4.5% Net Revenue Growth

- $352 Average Patient Charge (APC)

- $0.8 Million Net Income/$0.03 Diluted Earnings Per Share

- $13.9 Million EBITDA From Continuing Operations

- Company Reiterates Fiscal 2008 Guidance

SCOTTSDALE, Ariz., Feb. 11 /PRNewswire-FirstCall/ -- Rural/Metro Corporation (Nasdaq: RURL), a leading provider of ambulance and private fire protection services, announced today results for its fiscal 2008 second quarter ended December 31, 2007.

Jack Brucker, President and Chief Executive Officer, said, "Our second-quarter results are highlighted by continued growth in net revenue, further reductions in uncompensated care and positive trending in the key metrics we use to evaluate the performance of our ambulance billing and collections efforts."

Second-quarter operating statistics included the following results:

-- Net APC, which is the Company's best measure of cash collected per

transport, increased to $352 per transport in the second quarter of

fiscal 2008 from $342 in the same period of the prior year.

-- DSO, a measurement of the average number of days it takes to receive

payment for an ambulance transport, improved to 64 days in the second

quarter of fiscal 2008 from 68 days in the same period of the prior

year.

-- Uncompensated care as a percentage of gross ambulance revenue was

14.5%, compared to 15.0% in the fiscal 2008 first quarter ended Sept.

30, 2007 and 14.0% in the second quarter of fiscal 2007.

Mr. Brucker continued, "We are very pleased wit RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

Three Months Ended Six Months Ended

December 31, December 31,

2007 2006 2007 2006

Net revenue $118,993 $113,908 $237,946 $227,655

Operating expenses:

Payroll and employee benefits 74,462 70,592 149,347 141,673

Depreciation and amortization 3,173 2,867 6,266 5,742

Other operating expenses 29,589 25,967 56,828 49,553

Auto/general liability insurance

expense 2,143 3,543 5,968 7,536

(Gain) loss on sale of assets (1,321) 11 (1,318) 8

Total operating expenses 108,046 102,980 217,091 204,512

Operating income 10,947 10,928 20,855 23,143

Interest expense (8,010) (7,986) (15,760) (15,771)

Interest income 92 140 234 260

Income from continuing operations

before income taxes and

minority interest 3,029 3,082 5,329 7,632

Income tax provision (1,690) (2,082) (2,855) (4,273)

Minority interest (259) (201) (764) (974)

Income from continuing operations 1,080 799 1,710 2,385

Income (loss) from discontinued

operations, net of income taxes (326) 511 (545) 612

Net income $ 754 $ 1,310 $ 1,165 $ 2,997

Income (loss) per share:

Basic -

Income from continuing

operations $ 0.04 $ 0.03 $ 0.07 $ 0.10

Income (loss) from discontinued

operations (0.01) 0.02 (0.02) 0.02

Net income $ 0.03 $ 0.05 $ 0.05 $ 0.12

Diluted -

Income from continuing

operations $ 0.04 $ 0.03 $ 0.07 $ 0.10

Income (loss) from discontinued

operations (0.01) 0.02 (0.02) 0.02

Net income $ 0.03 $ 0.05 $ 0.05 $ 0.12

Average number of common shares

outstanding - Basic 24,764 24,581 24,751 24,546

Average number of common shares

outstanding - Diluted 24,950 25,011 24,969 24,953

RURAL/METRO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Six Months Ended

December 31,

2007 2006

Cash flows from operating activities:

Net income $ 1,165 $ 2,997

Adjustments to reconcile net income

to net cash provided by

operating activities -

Depreciation and amortization 6,343 5,988

Non-cash adjustments to insurance

claims reserves (4,466) (3,128)

Accretion of 12.75% Senior

Discount Notes 4,268 3,772

Deferred income taxes 1,130 4,031

Amortization of deferred financing

costs 1,021 1,007

Loss (gain) on sale of property

and equipment 286 (667)

Earnings of minority shareholder 764 975

Stock-based compensation benefit - (7)

Change in assets and liabilities -

Accounts receivable (7,841) (3,189)

Inventories (145) (504)

Prepaid expenses and other 2,015 (1,969)

Insurance deposits (264) 914

Other assets 667 3,271

Accounts payable 2,636 1,492

Accrued liabilities 3,329 73

Deferred revenue (1,655) (85)

Other liabilities 563 (1,306)

Net cash provided by operating

activities 9,816 13,665

Cash flows from investing activities:

Purchases of short-term investments (5,000) (12,250)

Sales of short-term investments 5,000 18,451

Capital expenditures (7,525) (8,433)

Proceeds from the sale of property

and equipment 5 687

Net cash used in investing

activities (7,520) (1,545)

Cash flows from financing activities:

Repayment of debt (6,319) (7,019)

Issuance of debt 1,300 -

Cash paid for debt issuance costs (850) (162)

Tax benefit from the exercise of

stock options 75 93

Issuance of common stock 58 226

Distributions to minority

shareholders (500) (500)

Net cash used in financing

activities (6,236) (7,362)

Increase (decrease) in cash and cash

equivalents (3,940) 4,758

Cash and cash equivalents, beginning

of period 6,181 3,041

Cash and cash equivalents, end of

period $ 2,241 $ 7,799

Supplemental disclosure of non-cash

operating activities:

Increase in accumulated deficit,

other liabilities and

decrease in deferred income taxes

upon adoption of FIN 48 $12,826 $ -

Supplemental disclosure of non-cash

investing and financing activities:

Property and equipment funded by

liabilities $ 55 $ 102

Note payable incurred for software

licenses 354 -

Debt issuance costs funded by

liabilities 7 -

RURAL/METRO CORPORATION

RECONCILIATION OF EBITDA TO CASH FLOW

PROVIDED BY OPERATING ACTIVITIES

(unaudited)

(in thousands)

Three Months Ended Six Months Ended

December 31, December 31,

2007 2006 2007 2006

Income from continuing operations $ 1,080 $ 799 $ 1,710 $ 2,385

Add back:

Depreciation and amortization 3,173 2,867 6,266 5,742

Interest expense on borrowings 5,342 5,463 10,471 10,992

Amortization of deferred financing

costs 480 589 1,021 1,007

Accretion of 12.75% Senior Discount

Notes 2,188 1,934 4,268 3,772

Interest income (92) (140) (234) (260)

Income tax provision 1,690 2,082 2,855 4,273

EBITDA from continuing operations $13,861 $13,594 $26,357 $27,911

EBITDA from discontinued operations (539) 879 (900) 1,181

Total EBITDA $13,322 $14,473 $25,457 $29,092

The items listed below have not been included as adjustments in the above

calculation of EBITDA:

Stock-based compensation benefit - - - (7)

Loss (gain) on sale of property and

equipment 272 (664) 286 (667)

Gain on sale of accounts receivable (1,873) - (1,873) -

Debt amendment fees 149 47 149 47

Executive severance - - - 1,133

Adjusted EBITDA from all operations $11,870 $13,856 $24,019 $29,598

Increase (decrease):

Items added back to arrive at

EBITDA from continuing operations (12,781) (12,795) (24,647) (25,526)

Items added back to arrive at

EBITDA from discontinued

operations:

Income tax benefit (provision)

on discontinued operations 243 (247) 432 (323)

Depreciation and amortization

on discontinued operations (30) (121) (77) (246)

Items added back to arrive at

Adjusted EBITDA 1,452 617 1,438 (506)

Depreciation and amortization 3,203 2,988 6,343 5,988

Non-cash adjustments to insurance

claims reserves (4,466) (3,128) (4,466) (3,128)

Accretion of 12.75% Senior Discount

Notes 2,188 1,934 4,268 3,772

Deferred income taxes 564 2,180 1,130 4,031

Amortization of deferred financing

costs 480 589 1,021 1,007

Earnings of minority shareholder 259 202 764 975

Loss (gain) on sale of property and

equipment 272 (664) 286 (667)

Stock based compensation benefit - - - (7)

Changes in operating assets and

liabilities (1,385) 2,512 (695) (1,303)

Net cash provided by operating

activities $ 1,869 $ 7,923 $ 9,816 $ 13,665

h these improvements as we continue to mark progress on the execution of our business goals to generate sustainable revenue growth, minimize exposure to uncompensated care, and expedite and enhance billing and collections performance."

Results of Operations for the Quarter Ended Dec. 31, 2007

Consolidated net revenue for the second quarter increased 4.5% to $119.0 million, compared to $113.9 million for the same period in the prior year. Ambulance services revenue for the quarter was $99.4 million, or an increase of 2.9%, compared to $96.6 million for the same period of the prior year. Other services revenue, which includes fire services, was $19.6 million, or an increase of 13.2%, compared to $17.3 million for the same period of the prior year. Consolidated net revenue growth for the quarter was driven primarily by a $2.6 million increase in same-service-area medical transportation revenue, $1.5 million from new 911 and non-emergency contracts, $0.6 million in ambulance subsidies, a $0.8 million increase in master fire contract fees, and a $0.7 million increase in fire subscription revenue. These increases were offset by a $1.9 million reserve to contractual allowances pursuant to an alleged overpayment of Medicare claims in Tennessee for the period 2004 through 2005.

Payroll and employee benefits expense for the quarter was $74.5 million, or 62.6% of net revenue, compared to $70.6 million, or 62.0% of net revenue, for the same period of the prior year. Fiscal 2008 quarterly results included a $2.5 million positive workers' compensation insurance claims adjustment recognized in December 2007 compared to a $2.7 million positive adjustment recognized in December 2006.

Other operating expenses for the second quarter were $29.6 million, or 24.9% of net revenue, compared to $26.0 million, or 22.8% of net revenue for the same period of the prior year. The difference included a $1.0 million increase in professional fees related primarily to the adoption of FIN 48, the Company's recent financial statement restatement, and the review of Internal Revenue Code Section 382 matters, as well as expenses related to the agreement to settle the proposed Board of Directors election contest. Additionally, fuel expenses during the period increased $0.7 million due to higher gas prices.

Gain on sale of assets for the second quarter was $1.3 million, which includes the impact of a $1.6 million gain on the sale of accounts receivable that were previously written off.

Second-quarter auto and general liability insurance expense was $2.1 million, or 1.8% of net revenue, compared to $3.5 million, or 3.1% of net revenue for the same period of the prior year. The decrease was primarily due to a $1.9 million positive auto and general liability claims adjustment recognized in December 2007, compared to a $0.4 million positive adjustment recognized in December 2006.

Net income for the second quarter was $0.8 million, or $0.03 per diluted share, compared to net income of $1.3 million, or $0.05 per diluted share, for the same prior-year period.

Second-quarter Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) from continuing operations was $13.9 million compared to EBITDA from continuing operations of $13.6 million for the same prior-year period.

EBITDA from continuing operations is a key indicator used by management to evaluate operating performance. While EBITDA from continuing operations is not intended to replace any presentation included in the Company's consolidated financial statements under generally accepted accounting principles (GAAP) and should not be considered an alternative to operating performance or an alternative to cash flow as a measure of liquidity, the Company believes this measure is useful to investors in assessing its ability to meet future debt service, capital expenditure and working capital requirements. This calculation may differ in method of calculation from similarly titled measures used by other companies. A reconciliation of EBITDA from continuing operations to GAAP financial measures for the three months and six months ended December 31, 2007 is included with this press release and the related current report on Form 8-K.

Results of Operations for the Six Months Ended Dec. 31, 2007

Consolidated net revenue for the six months ended December 31, 2007 increased 4.5% to $237.9 million, compared to $227.7 million for the prior year. Ambulance services revenue for the six months was $199.7 million, or an increase of 3.6%, compared to $192.8 million for the same period of the prior year. Other services revenue, which includes fire services, was $38.2 million, or an increase of 9.7%, compared to $34.9 million for the same period of the prior year. Consolidated net revenue growth for the six months was driven primarily by a $5.1 million increase in same-service-area medical transportation revenue, $2.6 million from new 911 and non-emergency contracts, $1.5 million in ambulance subsidies, a $1.7 million increase in master fire contract fees, and a $1.2 million increase in fire subscription revenue. These increases also were offset by a $1.9 million reserve to contractual allowances pursuant to an alleged overpayment of Medicare claims in Tennessee for the period 2004 through 2005 mentioned above.

Payroll and employee benefits expense for the six months was $149.3 million, or 62.8% of net revenue, compared to $141.7 million, or 62.2% of net revenue, for the same period of the prior year. Fiscal 2008 year-to-date results also included the $2.5 million positive workers' compensation insurance claims adjustment recognized in December 2007 compared to a $2.7 million positive adjustment recognized in December 2006, as discussed above.

Other operating expenses for the six months were $56.8 million, or 23.9% of net revenue, compared to $49.6 million, or 21.8% of net revenue, for the same period of the prior year. The difference included a $3.1 million increase in professional fees related primarily to the adoption of FIN 48, the Company's recent financial statement restatement, and the review of Internal Revenue Code Section 382 matters, as well as expenses related to the agreement to settle the proposed Board of Directors election contest. Additionally, fuel expenses during the period increased $1.0 million due to higher gas prices.

Gain on sale of assets for the six months was $1.3 million, which includes the impact of a $1.6 million gain on the sale of accounts receivable that were previously written off, as discussed above.

Auto and general liability insurance expense for the period was $6.0 million, or 2.5% of net revenue, compared to $7.5 million, or 3.3% of net revenue for the same period a year ago. As described above, the decrease was due to a $1.9 million positive actuarial claims adjustment recognized in December 2007 compared to a $0.4 million positive adjustment recognized in December 2006.

Net income for the six-month period was $1.2 million, or earnings of $0.05 per diluted share, compared to net income of $3.0 million, or earnings of $0.12 per diluted share, for the same prior-year period.

EBITDA from continuing operations for the six-month period was $26.4 million compared to EBITDA from continuing operations of $27.9 million for the same prior-year period.

Fiscal 2008 Financial Guidance

The Company reiterated its financial guidance for the fiscal year ending June 30, 2008, expecting EBITDA from continuing operations to be in the range of $50.0 million to $55.0 million and capital expenditures to be in the range of $13.0 million to $15.0 million.

Operating Statistics

Following is a presentation of certain of the Company's key operating statistics:

Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08

(12/31/06) (3/31/07) (6/30/07) (9/30/07) (12/31/07)

Medical

Transports (1) 263,096 271,189 268,479 266,789 267,604

Average

Patient Charge

(APC) (2) $342 $327 $335 $348 $352

Days Sales

Outstanding

(DSO) (3) 68 67 65 64 64

(1) Medical transports from continuing operations are defined as actual

emergency and non-emergency patient transports.

(2) Net Medical Transport APC is defined as gross medical ambulance

transport revenue less provisions for contractual allowances

applicable to Medicare, Medicaid and other third-party payers and

uncompensated care, divided by medical transports from continuing

operations. For the three and six months ended December 31, 2007, the

calculation excludes the effect of the $1.9 million alleged

overpayment of Medicare claims in Tennessee.

(3) DSO is calculated using the average accounts receivable balance on a

rolling 13-month average and net revenue on a rolling 12-month basis

and has not been adjusted to eliminate discontinued operations.

Conference Call to Discuss Results

The Company will discuss results in a conference call today beginning at 8 a.m. Pacific/11 a.m. Eastern. To access the conference call, dial (877) 419-6597 (domestic) or (719) 325-4890 (international). The call will be broadcast live on the Company's web site at http://www.ruralmetro.com. A telephone replay will be available from approximately 2 p.m. (Eastern) today through midnight (Eastern) February 12, 2008. To access the replay, dial 888-203-1112. From international locations, dial (719) 457-0820. The required pass code is 1519724. An archived webcast will be available for 90 days following the call at http://www.ruralmetro.com.

About Rural/Metro

Rural/Metro Corporation provides emergency and non-emergency ambulance services and private fire protection services in 23 states and approximately 400 communities throughout the United States. For more information, visit the Company's web site at http://www.ruralmetro.com.

SAFE HARBOR PROVISIONS FOR FORWARD-LOOKING STATEMENTS

The foregoing reflects the Company's views about its financial condition, performance and other matters that constitute "forward-looking" statements as such term is defined by the federal securities laws. You can find many of these statements by looking for words such as "may," "will," "expect," "anticipate," "believe," "estimate," "should," "continue," "predict," "preliminary" and similar words used herein. We may also make forward-looking statements in our earnings reports filed with the Securities and Exchange Commission (SEC), earnings calls and other investor communications. These forward-looking statements are subject to the safe harbor protection provided by federal securities laws. These forward-looking statements are subject to numerous risks, uncertainties and assumptions, including those relating to the Company's future business prospects, working capital, accounts receivable collection, cash flow, EBITDA, capital expenditures, expected trends in uncompensated care, payroll expense, repayment of debt, insurance coverage and claim reserves, capital needs, operating results and compliance with debt facilities. In addition, the Company may face risks and uncertainties related to the effectiveness of its initiatives to reduce uncompensated care, and its ability to collect its accounts receivable and other factors that are listed in its periodic reports filed under the Securities Exchange Act. Although the Company believes the expectations reflected in its forward-looking statements are based upon reasonable assumptions, because the statements are subject to risks and uncertainties, the Company can give no assurance that its expectations will be attained or that actual developments and results will not materially differ from those expressed or implied by the forward-looking statements. Readers are cautioned not to place undue reliance on the statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.

(RURL/F)

CONTACT: Liz Merritt, Rural/Metro Corporation (investors)

(480) 606-3337

Jeff Stanlis, Hayden Communications (media)

(602) 476-1821

RURAL/METRO CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

December 31, June 30,

2007 2007

ASSETS

Current assets:

Cash and cash equivalents $ 2,241 $ 6,181

Accounts receivable, net 86,154 78,313

Inventories 8,927 8,782

Deferred income taxes 18,964 15,836

Prepaid expenses and other 16,499 18,273

Total current assets 132,785 127,385

Property and equipment, net 46,882 45,521

Goodwill 37,700 37,700

Deferred income taxes 56,031 67,309

Insurance deposits 2,132 1,868

Other assets 19,449 19,547

Total assets $ 294,979 $ 299,330

LIABILITIES, MINORITY INTEREST AND

STOCKHOLDERS' DEFICIT

Current liabilities:

Accounts payable $ 17,915 $ 15,271

Accrued liabilities 55,436 53,358

Deferred revenue 23,304 24,959

Current portion of long-term debt 331 41

Total current liabilities 96,986 93,629

Long-term debt, net of current

portion 279,635 280,081

Other liabilities 28,255 24,065

Total liabilities 404,876 397,775

Minority interest 2,368 2,104

Stockholders' deficit:

Common stock, $0.01 par value,

40,000,000 shares authorized,

24,822,726 and 24,737,726 shares

issued and outstanding

at December 31, 2007 and June 30,

2007, respectively 248 247

Additional paid-in capital 154,909 154,777

Treasury stock, 96,246 shares at both

December 31, 2007 and June 30, 2007 (1,239) (1,239)

Accumulated other comprehensive

income 106 294

Accumulated deficit (266,289) (254,628)

Total stockholders' deficit (112,265) (100,549)

Total liabilities, minority

interest and stockholders'

deficit $ 294,979 $ 299,330


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SOURCE Rural/Metro Corporation
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